Finance and Industry: Euronotes reach a high pitch; News corporation media group issue

The latest event in the distinguished history of Blenheim Palace was yesterday's gathering of bankers and borrowers to signa a dollars 670 million Euronote facility for News Corporation, the media group which includes Times Newspapers, the Sun and News of the World. The issue, a relatively large one for an international corporation, is further evidence of the roaring development of the Euronote market in recent months.

In 1981, Euronote facilities totalled less than dollars 1 billion. By 1983, the figure had crept up to around dollars 4 billion and then the market took off. Last year, the size of facilities shot up to dollars 20 billion and by September this year it was touching dollars 32 billion. Out of this total the amount of paper actually outstanding was in the region of dollars 13 billion.The reason for the market's popularity is not hard to understand. For borrowers the money is remarkably cheap. Euronotes are short-term instruments varying between seven days and one year; the popular maturities tend to be up to six months. On such short maturities the fees charged by the banks are around 0.25 per cent less than on a conventional mediumterm syndicated loan. The borrower is also likely to be paying a rate of interest little more than the London Interbank Bid Rate, or even slightly less.That is not as unattractive a rate to lenders as it might seem. The deteriorating credit worthiness of banks in recent years has increased the flow of deposits to the higher quality banks, forcing down their deposit rates in the process.Sovereign borrowers made up a large part of the market when it took off in 1984, but as the idea of Euronotes caught on, the composition of the market has changed. While sovereign borrowers took around dollars 9 billion (nearly half the market) last year, their share this year has been dwarfed by issues from corporate borrowers.

This development has been matched by a move in recent months among the banks who arrange the issues.

Until this year most of the banks operating in the market made their money from two sets of fees: those derived from acting as market makers for the paper issued and those from the long-term standby facility attached to note issues by which the banks step in with the money if, for some reason, the borrower becomes unable to issue its own paper.Increasingly, banks are specializing in the dealing or the standby side of the arrangement, with the market making becoming concentrated in the hands of a small number of international banks like Citicorp. A much larger group of banks prefer to limit their involvement to the long-term standby element. This counts towards the off-balance sheet risks which are now causing central bankers such headaches.